Weakest Improvement in Manufacturing Conditions for Almost Two Years in December
- Headline PMI eases to its lowest since January 2017
- Softer rates of output and new order growth
- Export sales stagnate at the end of 2018
LONDON — (BUSINESS WIRE) — January 2, 2019 — Canadian manufacturers experienced a renewed slowdown in growth at the end of 2018, with both production volumes and incoming new work expanding at softer rates than in November. The pace of manufacturing job creation also moderated in December, partly reflecting a drop in business optimism to its weakest since February 2016.
At 53.6 in December, down from 54.9 in November, the headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) signalled the weakest improvement in overall business conditions since January 2017.
A moderation in output growth to its slowest for two years was a key factor weighing on the headline PMI in December. Survey respondents commented on less favourable demand conditions, particularly in the energy sector. There were also reports that global trade frictions had held back export sales during the latest survey period.
New business volumes continued to rise in December, but at one of the slowest rates seen over the past two years. This partly reflected a stagnation in export sales.
Latest data indicated that new work from abroad was broadly unchanged in December, which ended a 12 month period of sustained expansion. Some firms noted a drag on export competitiveness from higher raw material costs (particularly steel). There were also reports that export demand from US clients had lost momentum.
Despite softer rates of output and new business growth, the latest survey revealed an accelerated rise in unfinished work. Higher backlogs of work have been recorded for three months running, driven by ongoing capacity pressures.
Manufacturers continued to add to their workforce numbers in December, but the rate of job creation slowed from the survey-record peak seen in the previous month. Anecdotal evidence suggested that less upbeat projections for output growth had acted as a brake on staff hiring at some firms.
Business optimism moderated to its weakest for almost three years in December. Reports from survey respondents indicated that concerns about the domestic economic outlook had weighed on business expectations for 2019. Some manufacturers also noted that global trade tensions had the potential to hold back growth in the next 121 months.
Meanwhile, input cost inflation eased to its lowest since August 2017. Manufacturers noted that lower oil-related prices had helped to offset pressure on costs from rising prices for metals. Factory gate charges also increased at a slower pace in December. There was an alleviation of pressure on supply chains at the end of 2018, with lead times for manufacturing inputs lengthening to the least marked extent since April 2017.
Christian Buhagiar, President and CEO at SCMA, said:
“December data signalled a loss of momentum for manufacturers at the end of the year, with stagnating export sales and softer energy sector demand the key factors behind an overall slowdown in production growth. Survey respondents also commented that global trade tensions has led to greater risk aversion among clients. As a result, manufacturing companies have curtailed their expectations for output growth in 2019, with business optimism easing to its lowest for almost three years.
"Quebec was a notable outperformer in December as manufacturing conditions improved at the fastest pace for four months. Meanwhile, manufacturers in Ontario saw softer overall growth than in November, while those based in Alberta & British Columbia experienced the weakest upturn for just over two years."
December data pointed to a renewed slowdown in production growth across the Canadian manufacturing sector. The seasonally adjusted Output Index has now dropped in three of the past four months, with the latest reading signalling the weakest rate of expansion since December 2016.
A number of manufacturers cited softer demand from the energy sector, alongside a headwind to growth from ongoing global trade tensions.
The seasonally adjusted New Orders Index revealed a solid upturn in new work at the end of 2018, but the rate of expansion continued to lose momentum. Moreover, the latest reading was one of the lowest seen over the past two years.
Survey respondents noted that less favourable demand conditions in both domestic and export markets had held back new order growth in December.
New Export Orders